SEC: Online Trading Needs Monitoring

Friday, January 26th 2001, 12:00 am

By: News On 6

WASHINGTON (AP) â€” Brokerage firms offering online trading need to provide more information to customers and closely monitor how quickly and well trading orders are executed, a new report by federal securities examiners found.

The report, released Thursday by the Securities and Exchange Commission, also notes continued misleading advertising claims by some online brokerages.

The SEC examiners found examples of advertising ``that may have inflated investor expectations,'' the report says. It did not name the brokerage firms.

Previous reviews of the online brokerage industry by the SEC and New York state's attorney general found problems such as delays in executing customers' buy and sell orders and deceptive advertising.

An estimated 10 million Americans have online accounts and some 200 companies offer Internet brokerage services for smaller commissions than traditional brokers charge. Online brokerage firms have spent hundreds of millions of dollars on advertising to attract customers â€” many of them new to investing and the stock market.

The explosive growth in online trading has sometimes made it challenging for the firms to handle the flow of customers' orders.

The new SEC report said online brokerages should provide more information, in plain English, about investment risk and terms and concepts such as investing on margin. Investors buy stocks on margin by borrowing part of the purchase price from their brokerage firm and putting up the securities as collateral for the loan.

The report noted that customer complaints about margin accounts have recently increased and that about one-third of the firms examined didn't provide prospective customers any information about margin, other than the margin agreement itself.

The examiners also found that some online brokerages were not adequately assessing the quality of order executions, the report said.

Dan Hubbard, a spokesman for Charles Schwab Corp., the biggest online broker, called the SEC report ``constructive.''

Many of the report's recommendations ``are based on practices already in place at Schwab,'' Hubbard said. ``We will continue to study the specific details of the recommendations.''

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On the Net:

The report is available on the SEC's Web site at http://www.sec.gov/news/studies/online.htm